Cisco’s Acquisition Of IronPort: Analysis And Process

Analysis

Discuss about the Cisco’s Acquisition of IronPort.
 

In the given case we are dealing with two companies, Cisco System and IronPort, they are in the business of Security Industry. Cisco has a share of 40% in Network Security Market and it is leading it since 2002. IronPort started off as a small company in providing email security service, and was growing rapidly. They were doubling their sales from 2005 to 2006 with a booking of nearly 70%.

In the given case we have to follow the procedure of Cisco, which they consider while doing any acquisition. It is being seen that IronPort might have a better market future than that of Cisco in the Security Industry. Due to lack in better security product feature of Cisco, they are considering acquisition. Cisco has a good brand name for acquiring numerous companies. They acquire companies, and integrate their product with their distribution and advertising team, by doing this they make a success out of the acquired company’s product.

First, we have to decide whether acquisition of IronPort is better option for Cisco or not.

Then we have to provide a solution to any problem faced by Cisco during the acquisition of IronPort, which generally relates to integration process.

Whether to Acquire or do an inbuilt of security system:

Cisco is following General Electric’s method to capture the market, they will be aiming for 50% market share and a number 1 or number 2 positions in the market, and they will specifically avoid market in which they are getting not more than 20% of market share. For this Cisco management formed a matrix of emerging market. First they have to identify that market, and see whether they can manufacture products related to that market. If they are unable to manufacture them then they will acquire the company who can manufacture it. They followed 70:30 ratio i.e. 70% of the products will be manufactured internally, while 30% of the product will be manufactured by acquired company.

Cisco is one of the leading companies in the networking technology of internet, and having 40% share in the total network security market. There security products are not considered the best in that sector neither cost – effective. They had some major gaps in their security products. When they came across IronPort’s email security solution, they thought that the integration of their security system with Cisco’s application product would be a major hit. If they acquire IronPort, Cisco would be able to combine security among its portfolio of networking product. So it would be better if Cisco acquires IronPort instead of making Security product in house. 

Cisco’s Acquisition Process

Cisco has follows 3 step for acquisition, those are:

• Evaluate the company
• Company’s ability to fulfill Cisco’s aim
• Integration 

• Vision of the company: Vision of both the companies is same, so in future there would be no clash relating their vision. IronPort and Cisco’s vision were same, both wanted to establish in the security industry, while IronPort being a small company lacks the requisite finance and big name like Cisco. Cisco wanted to integrate Ironport so that they can combine security in their product portfolio. 

• Size: They generally acquired small companies, but recently they acquired big companies like Linksys Group and Scientific-Atlanta Inc., so they have experience in acquisition of both small and big IronPort being a big size company, they were ready for such acquisition. 

• Long-term Benefit: Cisco acquires those companies which provide them long-term benefit and have a rapid market, IronPort has both the features, it is good for long-term purpose, and it is growing rapidly in the security industry. 

• Geographic Features: Cisco acquires companies which are near their geographic region i.e. within 20 miles of its head quarters. IronPort is located in San Bruno, California, which is near the head quarters of Cisco. 

In the Analysis part it is clearly discussed, explaining the benefit of acquiring IronPort. 

• Retaining 90% of the employee of the acquired company
• Support the product on which the acquired company is working, and encourage the employees to continue their work as they were doing before acquisition
• Launching of new product based on acquired company’s product
• Taking 90 days integration process for small companies, while 18 months for big companies 

Name of the company acquired	Type / Number of Employees	Acquisition Process
Crescendo Communication	Small company / 60 employees	Since Crescendo was lacking manufacturing facilities, with good revenue and known in the market for its product, while Cisco was lacking such product and wanted to establish in the market, acquiring was a reasonable step, integration process was complete within 90 days.
StrataCom	Big Company / 1000 employees	It was new for Cisco to enter in to telecommunication market; it wanted to import StrataCom’s traffic and quality of service with its own routers and switches. After acquisition Cisco gave its assurance that there would be no layoff of employees. It took more than 90 days to complete the integration process.
Linksys Group Inc.	Big Company / 500 employees	Linksys which made home networking equipment, Cisco’s networking gear cost more than the one build by Linksys. Cisco decided to keep Linksys brand name and their sales team, for smooth acquisition process.
Scientific Atlanta Inc.	Big Company / 7500 employees	Cisco’s acquisition of Scientific Atlanta, relaxed some of its acquisition features. Geographically it was far from its 20 miles from its headquarters, and their integration process took 18 months to complete.

IronPort, from the beginning was in a defensive state about the acquisition. CEO of IronPort made it clear from the beginning that they will not be acquired by any company.

Purchase Price: CEO of IronPort got offer for purchase of $ 400 million, which he rejected thinking that they deserve more than that. According to him, they deserve an offer of $ 1.5 billion.

Employees: IronPort’s employees were going through the same dilemma which happens with the employee of any acquired company, they were afraid of any layoff. They were also not ready to adapt to any new culture, they wanted to work in the same IronPort’s environment in which they have been working for so long.

Channels of IronPort: IronPort has 500 channel partners, with 150 being in North America. These channels are very effective for IronPort sales, if these are integrated then either Cisco will have a conflict with these channels or these these channels have problem with Cisco. Even if these channels have no problem, the sales of IronPort will increase by using the name of Cisco, but they won’t be able to sale Cisco’s product through these channels.

IronPort Sales team: IronPort’s sales team were paid higher compensation then what Cisco paid to their sales team, sales team were afraid that, the sales of IronPort might reduce due to integration along with their compensation.

Independence: IronPort wanted to work independently.

For resolving the above matter, Cisco raised the offer to $ 830 million, which according to Richard Palmer, Senior Vice President of Cisco was a very generous offer. Cisco has to be very careful in integrating IronPort. They can make certain changes in their integration process through which they can easily integrate IronPort.

First, should make 18 months integration plan, as IronPort is a big Company with more than 500 employees, they should integrate it slowly with one step at a time. Secondly, they should make a clear statement that there will be no layoff of employees. Third, they should allow them their independence in working within the Cisco’s environment. They should let the marketing and sales team work independently while allowing financing and other area to work with Cisco’s team. They should let engineers work on the product in which they were working before acquisiton.

For Channels of IronPort, for the initial stage they should let the IronPort team use their channel for the sale of their product, while using the name of Cisco, meanwhile they should allow the sales team to understand each Cisco’s product so that they can sell them in future through their channel.

They should let the compensation of Sales team remain same, and over time increase the compensation of their own sales team, so that they can establish a common compensation scheme for the whole company.

If they rush in their integration process, it might lead to a disaster, so to play safe; they should slowly integrate IronPort into their company. 

Conclusion

From the above analysis we get to see various results, we were to decide whether acquisition of IronPort by Cisco would be a better decision or not.

We first checked whether Cisco is capable of making the Security Product on its own or they need to buy it from outsiders and then sell it in the market with their own brand name and advertising technique. Cisco is already established in Security Industry, but their product are not that effective and less expensive, they have good market share but still they lack in making good security product. There are gaps in their security product, to overcome this and to combine their product portfolio with IronPort’s product; hence they decided to acquire IronPort.

From the above analysis which Cisco generally use to determine whether they should acquire a company or not, we concluded that acquiring IronPort would be a better option for future benefit. The only struggle Cisco will be facing in this acquisition is integration of IronPort with Cisco. For that we can make sure that Cisco doesn’t rush in to integration with IronPort immediately, when the employees of IronPort are comfortable with the culture and the environment of Cisco, then they should integrate it fully, so that in future there won’t be any conflict between the companies.

Integration Process of 18 months would be better, along with minor changes in their integration process of Cisco.